Solution
Brindha answered on
Apr 08 2020
Assessment Item 1
Student Name
Student No
Table of Contents
Description
Page no.
1.0 Executive Summary
3
2.0 Introduction
3
3.0 Legislative and Regulative Framework in India
3
3.1 Legislative and Regulative Framework in Australia
5
3.2 Comparison of the Accounting standards of India and Australia
7
4.0 Regulatory Capture Theory
7
4.1 When can a regulatory environment be captured
9
4.2 Regulatory capture in Australia
10
4.3 Regulatory capture in India
10
5.0 Conclusion
11
6.0 References
13
1.0 Executive Summary
This report proposes to study the legal and regulatory framework governing the accounting standards in India and Australia, with a view to identify the level of convergence of these accounting standards with International Financial Reporting Standards (IFRS). Further the report also intends to analyse the regulatory capture theory, the circumstances leading to such regulatory captures, the benefits of regulatory capture theory and evidences of such capture in India and Australia.
2.0 Introduction
The growth of any economy, as measured by GDP is determined by the business operations in the economy. Hence it is the responsibility of any business to adhere by legal and accounting standards as it enables the business to earn the trust of both domestic and international investors whose economic decision rests upon the efficiency, transparency and comparability of financial reports presented by these businesses.
As in a global economy one country bo
ows capital from another, financial statements of one country are used in another and hence harmonization of accounts becomes important. This report, proposes to analyse the prevailing legal and accounting standards in India and Australia and their convergence with IFRS. Further the report proposes to discuss the concept of regulatory capture by citing instances if any from India and Australia.
3.0 Legislative and Regulative Framework in India
The legal framework of corporate financial reporting in India comes under the purview of Companies Act 1956 and Securities and Exchange Board of India (SEBI). The Companies Act 1956 prescribes all reporting requirements for companies registered under it. In addition, the SEBI constituted in 1988, imposes reporting requirements through its guidelines and listing requirements which will have to be abided by companies that have been listed in the Indian stock exchanges. It would not be an exaggeration to state that SEBI has streamlined the process of financial disclosure by companies without any cumbersome lengthy legislative requirements; particularly Clause 50 of the listing agreement that states that all listed companies will have to comply with the accounting standards prescribed by ICAI.
The Accounting framework that works in tandem with the legal framework is governed by the Accounting Standards. There are two sets of standards in India, right now. One set of existing accounting standards under company rules, 2006 and another set of 32 Indian Accounting Standards (Ind AS) that have been formulated by the Accounting Standard Boards of Institute of Chartered Accounts, India and have converged with the IFRS. (ICFAI, 2011).
While standardization is done with a view to ensure uniformity, accounting standards are formulated with a view to improving quality and ensuring comparability, consistency and transparency of financial reporting so that intra-enterprise and inter-enterprise performance appraisal is possible to make economic decisions. The problem in the Indian regulatory framework therefore stems out mainly from the fact that there exist two accounting standards, with one converging with IFRS and named and numbered co
esponding with IFRS and the other diverging from the same. (Kumar Das, S., 2014)
The reasons for absence of convergence with IFRS could be attributed to conceptual differences. This could best be explained with a few examples. The Companies Act treats Indian companies as separate legal entities and tax laws also assess them as individuals for tax purposes, while the IFRS promotes a group concept where except for tax compliance, individuals bear no relevance. As the companies act has no specification about consolidated accounts, the treatment of an individual case differs from that of a group, making convergence difficult.
Secondly the way in which fixed assets are defined and classified differ between the Act and IFRS where the latter takes components of fixed assets into consideration and treats them according to their useful life, which is not done in India. While the reflection of depreciated value of a re valued asset in the Profit and Loss account is prohibited by the Companies Act, IFRS permits the same by routing it through the income statement.
Hence in order to implement IFRS, the legal and regulatory frameworks of India need to be amended so as to adopt IFRS. (Shrivatsava, P., et al., 2015)
3.1 Legislative and Regulative Framework in Australia
In Australia, two frameworks, namely the legal and accounting framework determine whether a business has to adopt the process of financial reporting or not and if yes, the standards to be followed are also prescribed by these frameworks. That goes without saying that the responsibility of providing financial reports is taken up by those companies listed in the Australian stock exchanges. Other small companies may not prepare any such financial reports at all.
The legal framework is predominantly governed by the Corporations Act. Section 292 of the Act states that only incorporated companies are required to prepare and present financial reports in compliance with the standards prescribed by the Australian Accounting Standards Board. As the Corporations Act does not prescribe any reporting requirements for unincorporated companies operating through a trust or partnership, the task of financial reporting is self imposed responsibility by these trusts or partnerships.
The Accounting framework of Australia basically consists of around 50 accounting standards that are all applicable to most of the industries in the country while...